Europe's Shell Game With Ukraine

Marc Champion writes editorials on international affairs. He was previously Istanbul bureau chief for the Wall Street Journal. He was also an editor at the Financial Times, the editor-in-chief of the Moscow Times and a correspondent for the Independent in Washington, the Balkans and Moscow. He is based in London.Read More.

How much has Europe spent to support Ukraine's economy since Russia annexed Crimea and stoked a war to destabilize a new government in Kiev?

The short answer is, not enough. A successful financial rescue for Ukraine would make it clear, both to the Kremlin and Ukrainians, that the economy can withstand Russian pressure. The longer response is that you have to look closely to figure out what the European Union's financial response to the crisis has really been.

According to the most recent account from the European Commission, the EU has so far disbursed 2.21 billion euros to help Ukraine with its budget -- less than 1 percent of the money allocated by the euro area to bail out Greece.

There is more to come from this part of the EU's promised aid package: two more payments of 600 million euros each, tied to Ukraine's compliance with the International Monetary Fund's requirements for fiscal adjustments and structural reforms (which is as it should be). The EU also offered 355 million euros to handle short-term shortfalls, and to meet the conditions of a new trade and association agreement.

There are other big wedges of money to make up the EU's overall pledged aid response of 11 billion euros, although here it gets squirrelly. The Commission cites, for example, a 300 million euro loan from Euratom, the EU's agency for increasing nuclear safety on the continent. Euratom's financing was released last month, but it was decided as long ago as 2011, when the project was unveiled and long before Russia annexed Crimea.

Don't get me wrong. The loan is a good use of funds for the EU's environmental security, and it's vital to Ukraine. The country experienced the world's worst nuclear safety disaster, at Chernobyl in 1986, and has long needed to diversify its energy mix away from Russian natural gas imports. So kudos all round. But the money was hardly a response to current crisis.

Similarly, fully 3 billion euros of the EU's headline package comes from projects to be delivered by the European Investment Bank between 2014 and 2016. Indeed, in the roughly 17 months since the EU announced its Ukraine aid package, the EIB has signed 1.3 billion euros worth of new contracts. These cover things like water purification and sewage plants, credit lines for small and medium-sized companies, repairs to a natural-gas transit pipeline, and several projects to fix things broken during the conflict in eastern Ukraine. This is all valuable.

But do the EIB's 3 billion euros really constitute new money delivered in response to the crisis? Or was this an existing financial fire hose? Well, in the 17 months before the EU's March 5, 2014 announcement of the EIB program, the bank signed just over 1 billion euros worth of projects, not a huge difference and consistent with an upward trend from 600 million in the previous 17-month period.

The EU believes it is doing a lot. Add everything up and all this aid amounts to "the largest EU financial assistance package ever granted to a non-EU country in such a short time," it says. There's no reason to doubt the claim. At a time when Ukraine is financially bleeding, the transfusion of EU, IMF and U.S. money offered to date has prevented an even worse economic collapse. And there's no doubt Ukraine presents a special challenge to donors: Pumping money effectively into a country with one of the most corrupt bureaucracies in the world is no simple task.

But this sets the bar too low. The EU hasn't faced a situation as strategically grave as this since the Cold War. For the long-term health of the continent, stabilizing Ukraine and coming to agreement with Russia about the limits of its right to deploy force in the neighborhood it shares with the EU is at least as important as keeping Greece in the euro currency area.

Moreover, scrambling to make the financial response appear bigger than it really is, is as damaging as it is common. The EU cannot afford to raise and dash expectations in a country as fragile as Ukraine -- one that has taken huge risks to try to integrate with the EU's economy and its political values.

The European Commission has done what it can with the relatively little money delivered, and has sought to pad that reality by rebranding what already existed. It would do more if it had more. That, however, is up to the 28 governments of the EU's member states. Together with the U.S., they need to do what it takes to support Ukraine's economy.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Marc Champion writes editorials on international affairs. He was previously Istanbul bureau chief for the Wall Street Journal. He was also an editor at the Financial Times, the editor-in-chief of the Moscow Times and a correspondent for the Independent in Washington, the Balkans and Moscow. He is based in London.Read more